Application of the new Premier League owners’ and directors’ test

Sir Jim Ratcliffe’s acquisition of a stakein Manchester United in February 2024 was the first acquisition of “Control”(as such term is defined in the PremierLeague Rules) to be approved by the Premier League and its independent oversight panel (IOP) following the changes to the owners’ and directors’ test (OADT) that were agreed last year.

Under Premier League Rule F35, any approval of a change of “Control” by the Premier League is subject to review by the IOP.¹ The IOP is currently chaired by Murray Rosen KC, who was appointed in 2023 for a three year term, and comprises between eight and fifteen members at any one time, each of whom was appointed by the chair in a process independent of the clubs and the Premier League. The IOP is tasked with considering whether the Premier League’s decision was reasonable in all of the circumstances based on the material available at the relevant time and the members of the IOP are appointed by the chair and must be independent of the clubs and the Premier League. The full terms of reference for the IOP are set out at appendix 21 of the Premier League Rules.

The changes to the OADT also included the introduction of the “Acquisition Leverage Test”, which essentially prohibits fully leveraged buyouts of football clubs. Proposed owners will not be approved by the Premier League if the ratio of “Acquisition Debt” to “Acquisition Equity” (as such terms are defined by the Premier League Rules) exceeds 65 per cent. This debt-to-equity ratio is tested prior to the acquisition of control and then again six and twelve months following completion of the acquisition (or at any other point that the Premier League determines prior to the date falling twelve months after completion of the proposed acquisition).

Following an acquisition, the Premier League Rules also grant the Premier League with broad powers to require the club to explain any noncompliance with the test or to provide a remedial plan and timeframe for correcting such non-compliance.² Additionally, the Premier League can prohibit clubs from making distributions to members if it has failed to deliver a completed certificate or has otherwise not complied with the leverage ratio for a period of fourteen days.³ Whilst this rule has not been applied retrospectively, it may have prohibited the Glazer family’s acquisition of Manchester, which reportedly loaded the club with a debt of £525m (c. 66.4 per cent) against a purchase price of £790m. The rule change may also have been introduced in the wake of the significant criticism of the debt Burnley took on as part of its takeover by ALK Capital. Potential buyers of clubs will need to bear this in mind and work with their legal and financial advisers at an early stage to ensure that their funding proposal complies with the test.

The OADT was also strengthened by the addition of eight new “Disqualifying Events” (as such term is defined in the Premier League Rules), as the list was expanded from 18 items in the 2022/23 Premier League Rules to 28 items in the 2023/24 Premier League Rules.⁴ If a person is subject to a Disqualifying Event, then they are prohibiting from acting as a “Director” (as such term is defined in the Premier League Rules) of a club,⁵ which extends beyond occupying the role of a statutory director but also includes possessing “Control” of the club, thereby also covering the ultimate beneficial owners of clubs too. The additional Disqualifying Events include being subject to UK sanctions,⁶ being subject to an unsatisfied judgement or court order for payment of a monetary amount⁷ or being subject to a “Potential Disqualifying Event”.⁸ The introduction of the prohibition for a Potential Disqualifying Event in particular would essentially prohibit someone from being an owner or a director of a club where they are the subject of an ongoing investigation by a UK government appointed regulatory authority or a UK criminal authority (or any equivalent body or authority of competent jurisdiction anywhere in the world) for conduct which, if proven, would result in the person being subject to a Disqualifying Event. Additionally, the remit of certain previous Disqualifying Events has also been strengthened. For example, the list of insolvency events has been expanded⁹ and the exclusion for spent convictions where a potential owner and director has been convicted of certain criminal offences has been removed where a person has been convicted of two or more such criminal offences.¹⁰

Finally, the due diligence conducted on potential buyers generally also increased, with the introduction of a requirement to “submit such documentation and information as may be requested by the Premier League board”, which shall include but not be limited to the “Acquisition Materials” (as such term is defined in the Premier League Rules).¹¹ This increased scrutiny on incoming owners by the Premier League, coupled with the imminent introduction of a regulator, is likely to further reduce the pool of potential owners of Premier League football clubs. It is also worth noting that the updates to the OADT have generally be adopted by the English Football League too (and the list of Acquisition Materials are identical), save that the equivalent English Football League test does not yet include an IOP or the Acquisition Leverage Test.